Apple: Impact of unexpected events on the stock price

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This presentations analysis the effect of unexpected events on Apple's share price

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Apple: Impact of unexpected events on the stock price

  1. 1. Topics in Accounting – case analysis – apple Inc. Tomotaka Brink Fushimi Davide Maraschi Philipp Refior Ben Carrion Schafer
  2. 2. Apple – a volatile stock…
  3. 3. The Apple Stock – yearly overview Q1 financial data release Jobs takes medical leave Jobs back at work Jobs presents new iPods
  4. 4. The Apple Stock – last three months Normal 15-20M Normal 15-20M Peak 30M Low 10-15M Peak 42M Trading Volume Medium 20-30M Stabilized? Press Release Financial Results Q4 Steve Jobs Returns to Stage, new iPods
  5. 5. The Apple Stock – October 19 th , Press Release <ul><li>Apple Reports Fourth Quarter Results Most Profitable Quarter Ever ; Record Mac and iPhone Sales </li></ul><ul><li>Cupertino, California – Apple today announced financial results for its fiscal 2009 fourth quarter ended September 26, 2009. The Company posted revenue of $9.87 billion and net quarterly profit of $1.67 billion, or $1.82 per diluted share. These results compare to revenue of $7.9 billion and net quarterly profit of $.14 billion, or $1.26 per diluted share, in the year-ago quarter. Gross margin was 36.6 percent, up from 34.7 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue. </li></ul>
  6. 6. The Apple Stock – October 19 th , Press Release <ul><li>Apple Inc. Issues Q1 2010 Outlook; EPS Outlook Below Analysts' Estimates Monday, 19 Oct 2009 04:30pm EDT   </li></ul><ul><li>Apple Inc. announced that for first quarter of 2010, it expects revenue in the range of about $11.3-$11.6 billion and diluted earnings per share (EPS) in the range of about $1.70-$1.78. According to Reuters Estimates, analysts were expecting the Company to report revenues of $11.5 billion and EPS of $1.93 for the same period.  </li></ul>
  7. 7. Ratio Analysis: Horizontal <ul><li>Growing slower BUT still growing strong in the middle of a global recession </li></ul>
  8. 8. Ratio Analysis: Vertical Cost of sales down Gross margin up General /admin costs down R&D spending up Net income up
  9. 9. Ratios: liquidity, leverage, return on investments, efficiency, market <ul><li> Current ratio down </li></ul> Liabilities up  Gross margin up  Return on investments down <ul><li>Efficiency ratios down </li></ul><ul><li>(more efficient) </li></ul> Market ratios recovering     2007 2008 2009 Liquidity ratios       Current ratio 4.42 2.29 1.88 Leverage Ratios       Total liabilities/Total assets 0.37 0.47 0.48 Total liabilities/Shareholders equity 0.74 0.88 0.93 Profit Ratio       Gross margin/sales 0.34 0.34 0.36 Return on Investment       ROE   0.24 0.23 0.20 ROA   0.14 0.12 0.11 Efficiency Ratios       Turnover   14.66 13.41 10.87 Inventory turnover 45.82 41.91 51.42 Assets turnover 0.95 0.82 0.68 Market Ratio       Market to book 8.93 5.49 6.55 Market to PE 36.68 23.93 32.19
  10. 10. Estimates for Apple stock price after the release or Q4 results Analysts had been expecting EPS between $1.24 and $1.72, In the end the actual EPS were 1.82 (as from the latest annual report)   If we consider that the price was already factoring in the rosiest expectation (1.72) then the increase was 5.8% (1.82 / 1.72 = 5.8%)   The price of the stock should have also increased accordingly by 5.8%. Therefore 189.86 (closing price on October 19 th ) + 189.86* (5.8%) = $ 200.87
  11. 11. Actual Apple stock price after the release or Q4 results Press Release Financial Results Q4
  12. 12. Actual Apple stock price after the release or Q4 results
  13. 13. The Apple Stock – Market reaction   Overall market reaction ($208.71) exceeded our estimate of $200.87 That could be explained by several factors : New Accounting Rules proposed by FASB (end of August 2009) Instead of spreading iPhone revenue over two years they will be able to report sales for certain gadgets all at once.   Analyst seem to believe that under new accounting rules Apple would increase its earnings by 44%  Potential Target Price $235 Although Apple is not required to implement those until 2010, it’s possible that the market has already factored in those expectations.  
  14. 14. The Apple Stock – Market reaction Press Release Financial Results Q4 One week after the announcement of the financial results the stock began to fall From its peak on the morning of Monday, October 26 th at $205.82 To a low on Tuesday, November 3 rd of $186.71
  15. 15. The Apple Stock – Market reaction Press Release Financial Results Q4 Potential reasons for downturn: - Nokia`s lawsuit over breach of patents - Reaction after breaking the psychological $200 mark - Reports of malfunctions of new iPod product
  16. 16. The Apple Stock – Market reaction Press Release Financial Results Q4
  17. 18. Annual report release dates <ul><li>Release dates have changed since 2007 </li></ul>

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